15 February 2000 GST/HST Interpretation 7968/HQR0001574 - Application of the GST/HST to Flight Training -

Tim Krawchuk, Manager GST/HST Rulings and Interpretations

February 15, 2000XXXXXCase: 7968/HQR0001574

Subject:

Application of the GST/HST to Flight Training - XXXXX

Thank you for your letter concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to flight training obtained by XXXXX XXXXX[.] Further to our telephone conversation of December 15, 1999, I am responding to you directly as this matter involves an application for tax paid in error. I apologize for the delay in responding to your inquiry.

You have requested an opinion on the following issue:

Is the GST applicable to supplies of flight training provided by the XXXXX[.] Section 8 of Part III of Schedule V to the Excise Tax Act ("section 8") exempts:

A supply, other than a zero-rated supply, made by a school authority, vocational school, public college or university of a service of instructing individuals in, or administering examinations in respect of, courses leading to certificates, diplomas, licences or similar documents, or classes or ratings in respect of licences, that attest to the competence of individuals to practice or perform a trade or vocation where:

(a) the document, class or rating is prescribed by federal or provincial regulation;

(b) the supplier is governed by federal or provincial legislation respecting vocational schools; or

(c) the supplier is a non-profit organization or a public institution.

We understand that the XXXXX is not a school authority, public college or university; therefore, in order for its courses to qualify pursuant to section 8, the following conditions must be met:

A. the organization making the supply must be a vocational school;

B. the organization making the supply must

(a) issue certificates or licenses prescribed by federal or provincial regulation;

(b) be governed by provincial legislation respecting vocational schools, or

(c) be a non-profit organization or a public institution; and

C. the supplies of instruction in courses must lead to a certificate or licence that attests to the competence of individuals to practice a trade or vocation.

Each of these criteria are discussed below.

A. The Organization Making the Supply Must be a Vocational School

Effective for supplies made after 1996, the definition of "vocational school" was amended to remove any reference to subsection 118.5(1) of the Income Tax Act ("ITA"). The invoices attached to the file indicate that supplies of flight training were made to XXXXX during the years 1996 and 1997. Therefore, the tax status of the supplies provided in 1996 will be determined using the legislation effective during that period. The tax status of supplies provided after 1996, will be determined using the current legislation.

Supplies Made During 1996

Prior to January 1, 1997, the definition of "vocational school" in section 1 of Part III of Schedule V to the Excise Tax Act ("section 1") included an organization that met one of the following two conditions:

•   Established and operated primarily to provide courses that develop or enhance students' occupational skills; or

•   Certified by the Minister of Employment and Immigration (now Human Resources Development) for the purposes of the tuition tax credit under subsection 118.5(1) of the ITA.

This legislation, effective for supplies made in 1996, must be used to determine if the XXXXX was a vocational school in 1996.

Supplies Made After 1996

Section 1 now defines a vocational school as an organization that is "established and operated primarily to provide students with instruction in courses that develop or enhance students' occupational skills." Accordingly, organizations that previously qualified as vocational schools because they were certified for the purpose of subsection 118.5(1) of the ITA, will no longer qualify if they are not established and operated primarily to provide students with instruction in courses that develop or enhance students' occupational skills. This amended legislation will be used to determine the tax status of supplies of flight training made after 1996.

An organization will qualify as a vocational school if it meets all of the requirements of the definition, as follows:

•   it must be established primarily to provide instruction in courses that enhance students' occupational skills;

•   it must be operated primarily to provide instruction in courses that enhance students' occupational skills; and

•   the courses offered by the organization must enhance students' occupational skills.

To ascertain whether an organization is "established primarily" to provide courses that enhance students' occupational skills, we will review the organization's governing documents. These documents, which include letters patent, articles of incorporation, memoranda of agreement, by-laws, and articles, should contain information as to the reason or purpose for the establishment of the organization. In circumstances where this information is not readily available, how the organization is operated will be evidence of the purpose for its establishment. Also, where an organization is governed by provincial legislation respecting vocational schools, this will be considered as an indication that one of the main purposes of the organization is to provide vocational training.

However, registration with a province as a vocational school is not in and of itself conclusive evidence that the organization is "established primarily" as a vocational school for purposes of the Excise Tax Act ("ETA").

CCRA will consider an organization to be "operated primarily" to provide correspondence courses or instruction in courses that develop or enhance students' occupational skills, if more than 50% of its total annual revenues are derived from, or are related to, instruction in courses that develop or enhance students' occupational skills.

We do not consider as developing or enhancing students' occupational skills, courses in respect of sports, games, hobbies or other courses that are designed to be taken for recreational purposes, or for personal interest. The purpose or the intent of the course may be obtained from a review of the curriculum and the organization's promotional materials. Courses leading to the Private Pilot Licence and Recreational Pilot Permit are considered to simply allow the holder to operate a particular mode of transportation for personal use (similar to a private passenger vehicle licence). The holder of a Private Pilot Licence or a Recreational Pilot Permit does not normally derive an occupational benefit from these items. It is only where the person acquires a commercial pilot licence that an occupational benefit may be realized. Thus, private and recreational pilot lessons are not considered to develop or enhance students' occupational skills and revenues derived therefrom will not be included in the revenue calculation as revenues derived from, or related to, instruction in courses that develop or enhance students' occupational skills. Where a flight school derives most of its revenue from the provision of private and/or recreational pilots' lessons, the school will not be considered to be operated primarily to provide instruction in courses that develop or enhance students' occupational skills.

It is our position that the following programs develop or enhance students' occupational skills:

•   Commercial Pilot Licence (Aeroplane);

•   Airline Transport Pilot Licence;

•   VFR Over-the-Top rating;

•   night rating;

•   multi-engine rating;

•   instrument flight rating;

•   sea plane rating;

•   land plane rating; and

•   flight instructor ratings.

In addition, the Basic Commercial Pilot Licence (Aeroplane) and Advanced Commercial Pilot Licence (Aeroplane) are considered to be programs that develop or enhance students' occupational skills.

Federal legislation sets out minimum requirements or elements that must be completed by a student in order to obtain a Commercial Pilot Licence (Aeroplane), an Airline Transport Pilot Licence; and Classes or Ratings in respect of these licences. For example, as per the legislation, students seeking to obtain a Commercial Pilot Licence (Aeroplane) must complete a minimum amount of ground school instruction (40 hours), solo flight time instruction (30 hours), dual flight time instruction (35 hours) and build-up flight time (90 hours). Revenues derived from the minimum requirements set by the federal legislation may be included in the revenue calculation as revenues that relate to the provision of instruction in courses that develop or enhance students' occupational skills. Therefore, revenues derived from 40 hours of ground school, 30 hours of solo flight time instruction, 35 hours of dual flight time instruction and 90 hours of build-up flight time related to the Commercial Pilot Licence (Aeroplane) will be included in the revenue calculation as revenues that relate to the provision of instruction in courses that develop or enhance students' occupational skills.

Similarly, revenues derived from the 625 hours of solo flight time and the 875 hours of build-up associated with obtaining an Airline Transport Pilot Licence, along with the revenues derived from the flight time requirements for Classes or Ratings, will also be included in the revenue calculation as revenues that relate to the provision of instruction in courses that develop or enhance students' occupational skills.

Hours of instruction provided to a student over and above the minimums set by federal legislation will not be included in the revenue calculation, as revenues derived from courses that develop or enhance students' occupational skills. Where revenues derived from courses that develop or enhance students' occupational skills exceed 50% of an organization's total annual revenues, the organization will qualify as a vocational school within the meaning of section 1.

B. The Organization Making The Supply Must (a) Issue Certificates Or Licenses Prescribed By Federal Or Provincial Regulation; (b) Be Governed By Provincial Legislation Respecting Vocational Schools, Or (c) Be A Non-Profit Organization Or A Public Institution

Commercial Pilot Licences (Aeroplane), Airline Transport Pilot Licences and Ratings are all prescribed by federal legislation; therefore, this condition has been met.

C. Instruction in Courses Leading To A Certificate, Diploma, Licence or Similar Document That Attests to the Competence of Individuals To Practice A Trade Or Vocation

It is our position that courses or instruction leading to a Private Pilot Licence or a Recreational Pilot Permit do not relate to a trade or vocation, and are not exempt pursuant to section 8. However, ground school instruction components of commercial pilot programs and ratings are exempt pursuant to section 8 when supplied by a vocational school. With regard to dual and solo flight time, CCRA considers the student to be under instruction and direct supervision.

For the purposes of the build-up time, the student is not considered to be under instruction and direct supervision.

As stated above, only the minimum required time, as set out by the federal legislation, is exempt pursuant to section 8. Where a student purchases hours of flight time over and above that set out as the minimum requirements in the federal legislation, the additional hours will not be exempt pursuant to section 8.

The following summarizes the application of the GST to supplies of flight time supplied by a vocational school:

(a) Private Pilot Licence (Aeroplane) & Recreational Pilot Permit

We do not consider flight time leading to a Private Pilot Licence (Aeroplane) or a Recreational Pilot Permit to be exempt under section 8, since they do not have a direct link to skills that are recognized as relating to the ability to gain or retain employment. Specifically, we consider these licences to be obtained for personal interest, providing the individual with the right to fly a vehicle, and therefore not related to a trade or vocation. Supplies of flight time leading to a Private Pilot Licence (Aeroplane) or a Recreational Pilot Permit are subject to the GST.

(b) Commercial Pilot Licence (Aeroplane)

The federal legislation stipulates that an individual must complete the following flight time, in order to obtain a Commercial Pilot Licence (Aeroplane):

Dual flight time	35 hours
Solo flight time	30 hours
Total hours from private licence instruction	45 hours
Build-up flight time	90 hours

The supply of the 35 hours of dual flight time and the 30 hours of solo flight time are exempt supplies pursuant to section 8.

The 45 hours flight time from the private licence instruction is not exempt under section 8, since it does not otherwise meet the requirements of the section.

The 90 hours build-up time is not exempt under section 8, since the student is not under instruction and direct supervision while completing the 90 hours of build-up time. The supply of the 90 hours of build-up time is subject to the GST.

(c) Airline Transport Pilot Licence

The following flight time must be completed, pursuant to the federal legislation, in order for an individual to obtain an Airline Transport Pilot Licence:

Solo flight time	625 hours
Build-up flight time	875 hours

The supply of the 625 hours of solo flight time is an exempt supply pursuant to section 8.

The 875 hours build-up time is not exempt under section 8, since the student is not under instruction and direct supervision while completing the 875 hours of build-up time. The supply of the 875 hours of build-up time is subject to the GST.

(d) Classes or Ratings in Respect of Pilots' Licences

The solo and dual flight time required by federal legislation for the following ratings is exempt under section 8:

•   multi-engine rating

•   instrument flight rating

•   VFR Over-the-Top rating

•   night rating

•   sea plane rating

•   land plane rating

•   flight instructor rating (Please note however that the build-up time component for flight instructor ratings is a taxable supply.)

The following policy statements, in combination, explain the application of the GST/HST to supplies of flight training instruction:

•   P-229 Definition of "Vocational School" in Section 1 of Part III of Schedule V to the ETA

•   P-231 Courses That Qualify for Exemption Pursuant to Section 8 of Part III of Schedule V to the ETA

•   P-034R Tax Status of Flying Time Pursuant to Section 8 of Part III of Schedule V to the ETA

As we discussed during our telephone conversation of December 15, 1999, it will have to be determined whether or not the XXXXX qualifies as a vocational school.

I am returning all documents that your office forwarded with the inquiry.

Should you have any further questions, or require clarification with respect to the matters discussed herein, please do not hesitate to contact me at (613) 954-7957.

Tim Krawchuk, Manager

Legislative References:	Section 1 of Part III of Schedule V to the ETA Section 8 of Part III of Schedule V to the ETA
NCS Subject Code(s):	R-11915-7-2